Outstanding brokers compete for clients after Credit Suisse exit

Outstanding brokers compete for clients after Credit Suisse exit

Written by Carolina Mandel

NEW YORK (Reuters) – Credit Suisse Group AG’s exit from the hedge fund service business has unleashed a battle for market share among the banks, as the three largest players surged, according to major brokers and new industry data.

Credit Suisse said in November it would exit a major brokerage that provides financing, custody, clearing and advisory services to hedge funds and institutional clients.

Since then, competitors have been fighting for 1,800 customers, although the Swiss bank struck a deal to transfer them to BNP Paribas (OTC:) SA, according to executives at four major brokers.

George Evans, president of data provider Convergence Inc.

The three largest banks in the world in this field – Goldman Sachs Group Inc (NYSE :), Morgan Stanley (NYSE: 🙂 and JPMorgan Chase & Co (NYSE:) – they extended their lead in the first half of this year, according to data provided by Convergence https://www.datawrapper.de/_/bwS8d based on hedge fund regulators filings.

Below this top level, European banks Barclays (LON 🙂 Plc and BNP are making a solid push for a stake, according to data and interviews. The league table, which was not previously reported, ranked the major brokers by number of clients.

First-half data did not fully reveal the exit of Credit Suisse as it had shed only about a fifth of its customers at that point. But the ranking by revenue from data provider Coalition Greenwich and the views of major brokers paint a similar picture.

Convergence data showed that Goldman Sachs, which was the largest by number of clients, grew nearly 9% by that measure over the past year through June. In the back, Morgan Stanley and JP Morgan were second and third.

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“We lost some competitors and that created growth opportunities for Goldman,” said Cyril Guderres, global head of principal services at Goldman Sachs. Goldman’s stake grew 11% from 2020 to March 2022, according to a source familiar with the matter.

JPMorgan and Morgan Stanley declined to comment.

Alliance data showed that in recent years, the major brokerage business has generated more than $15 billion in revenue annually. Key services are also strategically important, bankers said, directing clients to wealth management, investment banking and more.

But brokerage is risky and capital intensive.

Graphics: Stock pickers brace for worst performance in 10 years: https://graphics.reuters.com/GLOBAL-HEDGEFUNDS/movanemwmpa/chart.png

Credit Suisse, which ranked fifth by number of clients and was the largest European player by revenue, decided to resign in November 2021 after losing $5.5 billion due to the default of Archegos Capital Management. Credit Suisse has abandoned major clients such as Blackstone (NYSE: Inc, BlackRock Inc (NYSE:), Bridgewater Associates and Millennium.

intense competition

After the top three places, the competition heated up at the next level.

Mike Webb, global head of major equity at Barclays, said the UK bank is focused on making the most money as clients by offering services across asset classes and regions.

“We want to be the European leader in equities and to do that we need to grow globally, particularly in the US,” said Nicholas Mark, head of global equities at BNP Paribas.

Alliance data showed that Barclays jumped its rivals to take fifth place last year from ninth in 2016 in terms of revenue.

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Large funds tend to have multiple prime brokerage relationships. When Credit Suisse said it was going out of business, several funds initially turned their businesses into companies it already had relationships with, Barclays Webb said.

“Now that the dust has settled, we’re seeing a second wave of flows as companies reassess their distribution among service providers,” Webb said.

Convergence data showed that Barclays saw a 10.8% growth in the number of fund clients over the past year through June. It also recently employed 20 employees from the main brokerage firm Credit Suisse.

BNP, which acquired the core business of Deutsche Bank AG (NYSE:): three years ago, has jumped to sixth from No. 9 in terms of revenue at major cash brokerages since 2019, according to consortium data. It gained nearly 4.5 percentage points of market share.

BNP also hired 20 employees from the main brokerage at Credit Suisse, according to a source familiar with the matter, and took over the management of research firm Exane earlier this year.

But the bank lost some customers, dropping to eighth place when it was ranked by that metric. However, its assets under management have remained stable, and a source familiar with the matter said major brokers sometimes give clients away to focus on priority clients.

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